Australian dollar dips, CPI next

OANDA:AUDUSD   Australian Dollar / U.S. Dollar
The Australian dollar has reversed directions on Tuesday and recorded slight gains. In the European session, AUD/USD is trading at 0.7781, down 0.22% on the day.

Australian CPI showed a strong gain of 0.9% in the fourth quarter, and an identical gain is projected for the first quarter of the year. The economy is performing well, boosted by stronger demand for Australian commodities and ultra-low interest rates. Unemployment has been falling, undeterred by the end of the JobKeeper employment programme at the end of March.

Not surprisingly, inflation is also showing strength, reflective of the positive economic conditions. Consumers are again spending, as Retail Sales rebounded in March with a gain of 1.4%, after a decline of 0.8% beforehand. This beat the forecast of 1.0%. The economy continues to grow after being reopened, and consumer spending is expected to be a key driver in the economic recovery. The RBA is projecting that GDP and employment will reach pre-pandemic levels later in 2021, which is 6-12 months faster than the central bank had expected.

In addition to stronger domestic demand, Australia stands to benefit from a more robust global economy, which will translate into stronger demand for Australian exports. This bodes well for the Australian dollar, which has a tight correlation with commodity prices.

Despite the rosy economic picture, the RBA remains cautious and has not given any indication that it plans to raise interest rates or even taper its QE programme. At its last meeting, the bank noted that inflation remains low and below the central bank's target, which is between 2-3 per cent. The bank added that although the employment picture has improved, unemployment still remains too high for its liking.

AUD/USD is putting strong resistance at 0.7813. Above, there is resistance at 0.7887. On the downside, there is support at 0.7688, followed by support at 0.7627